Cost-Reimbursement & T&M Vouchers
Also known as: Public voucher, allowable cost and payment, interim voucher, SF 1034/1035
What you do here: Bill allowable incurred costs on a public voucher
At a Glance
- Who it's for
- Contractors on cost-reimbursement and T&M / labor-hour contracts
- When you get paid
- As you incur allowable costs (interim vouchers), then final settlement
- The form
- SF 1034 / SF 1035 public voucher
- Governing clause
- FAR 52.216-7, Allowable Cost and Payment
- Cash-flow effect
- Reimburses costs but demands a compliant accounting system
What It Is
On a cost-reimbursement contract the government pays your allowable, allocable, and reasonable costs plus a fee, so payment is driven by your accounting records rather than by a delivered item. Under the clause at FAR 52.216-7 (Allowable Cost and Payment), you submit interim public vouchers — historically on Standard Form 1034/1035 — for costs incurred, applying provisional (billing) indirect rates for overhead and G&A. After year-end you submit an incurred-cost proposal, DCAA may audit it, and your rates are trued up to final negotiated rates (FAR Subpart 42.7), producing a settlement that adjusts what you were paid. Time-and-materials and labor-hour contracts work similarly on the materials side and pay fixed hourly labor rates for hours worked. All of this requires an accounting system adequate for cost-type work.
When It’s Used
- On cost-plus-fixed-fee, cost-plus-incentive-fee, and cost-plus-award-fee contracts.
- On time-and-materials and labor-hour contracts (materials at cost, labor at fixed hourly rates).
- When the requirement is too uncertain to price firm-fixed and the government accepts the cost risk.
- Where an adequate, DCAA-auditable accounting system is required as a condition of award.
Key Features
| Feature | What It Means |
|---|---|
| Allowable, allocable, reasonable | You can only bill costs that are allowable under FAR Part 31, allocable to the contract, and reasonable — unallowable costs (e.g., certain entertainment, interest) must be excluded. |
| Provisional billing rates | You bill overhead and G&A at provisional (interim) indirect rates during the year, subject to later adjustment to final rates. |
| Incurred-cost submission | After each fiscal year you submit an incurred-cost proposal so the government can establish final indirect rates (FAR 42.705). |
| DCAA audit & settlement | The Defense Contract Audit Agency may audit your costs and rates; the final-rate settlement adjusts (up or down) what you were paid on interim vouchers. |
| Adequate accounting system | Cost-type work requires an accounting system that segregates direct/indirect costs and unallowables — often pre-award surveyed on the SF 1408. |
The SDVOSB Cash-Flow Angle
Cost-reimbursement and T&M work can be a growth path for an SDVOSB, but the price of entry is an accounting system that passes muster — timekeeping, direct/indirect cost segregation, and exclusion of unallowables. Many small firms win cost-type work and then struggle with the compliance overhead and the delay between provisional billing and final-rate settlement, which can leave a receivable open for years. On T&M/labor-hour set-asides, note the wrinkle that the limitations on subcontracting are measured on the labor-cost portion — a detail that ties directly into how you staff the work with your own people versus subs.
How to Get Paid
- Confirm your accounting system is adequate for cost-type work before award (often verified via the SF 1408 pre-award survey).
- Set up provisional (billing) indirect rates with the cognizant agency.
- Submit interim public vouchers (SF 1034/1035) for allowable incurred costs plus fee, per the billing cycle.
- File your annual incurred-cost proposal so final indirect rates can be established (FAR 42.705).
- Reconcile the final-rate settlement — you'll owe or be owed the difference from provisional billings.
Watch Out For
- Billing unallowable costs is a compliance failure that can trigger penalties and repayment — scrub costs against FAR Part 31.
- Provisional rates that run high relative to final rates create a repayment liability at settlement.
- Late incurred-cost submissions can delay final-rate settlement and keep receivables open for years.
- Timekeeping is heavily scrutinized on cost-type and T&M work — inadequate records jeopardize payment.
- On T&M/labor-hour set-asides, the limitations on subcontracting are measured on labor cost, not total price.
Run the Numbers
Frequently Asked
How do you get paid on a cost-plus contract?
You submit interim public vouchers (historically SF 1034/1035) for your allowable, allocable, and reasonable incurred costs plus the negotiated fee, applying provisional indirect rates for overhead and G&A (FAR 52.216-7). After year-end you file an incurred-cost proposal, DCAA may audit it, and your rates are trued up to final negotiated rates, producing a settlement that adjusts what you were paid.
Do I need a special accounting system for cost-reimbursement contracts?
Yes. FAR 16.301-3 requires an adequate accounting system for cost-reimbursement contracts — one that can segregate direct and indirect costs, identify unallowable costs, and track costs by contract. The government often verifies this before award using a pre-award accounting-system survey documented on Standard Form 1408.
How are the limitations on subcontracting measured on a T&M contract?
On time-and-materials and labor-hour set-asides, the 50% self-performance requirement under 13 CFR 125.6 / FAR 52.219-14 is measured on the cost of contract performance incurred for personnel (the labor cost), not on materials or the total price. That makes staffing decisions — how much labor your own employees perform versus subcontractors — central to both payment and compliance.
Primary Sources
- FAR 52.216-7 — Allowable Cost and Payment
- FAR Subpart 42.7 — Indirect Cost Rates
- FAR 42.705 — Final indirect cost rates
- FAR Part 31 — Contract Cost Principles and Procedures
Plain-English reference, not legal, accounting, or financial advice. Payment and financing terms are set by each contract, and the FAR is amended from time to time — always read the actual contract clauses and invoicing instructions, confirm the applicable procedures with the contracting officer and payment office, and consult qualified counsel or an accountant for your specific situation before relying on this.
Change log (1)
- LaunchedPublished the federal contract financing & payment methods reference covering how an SDVOSB gets paid — invoice payment and the Prompt Payment Act (FAR Subpart 32.9 / 52.232-25), progress payments based on cost (FAR Subpart 32.5 / 52.232-16), performance-based payments (FAR Subpart 32.10 / 52.232-32), commercial product & service financing (FAR Subpart 32.2 / 52.232-29 & -30), construction progress payments and retainage (FAR 32.103 / 52.232-5 & -27), cost-reimbursement and T&M public vouchers (FAR 52.216-7 / Subpart 42.7), payment by electronic funds transfer through SAM (FAR Subpart 32.11 / 52.232-33), electronic invoicing via WAWF and IPP (FAR 32.905 / DFARS 252.232-7003), assignment of claims for bank financing (FAR Subpart 32.8 / 52.232-23), and contract debts and government offsets (FAR Subpart 32.6 / 52.232-17) — each with an at-a-glance quick-facts card, a when-it's-used list, a key-features table, an SDVOSB cash-flow angle, a how-to-get-paid checklist, watch-outs, FAQPage, Article, Dataset, and BreadcrumbList structured data, primary-source citations, and cross-links into the glossary, how-to guides, FAQ, contract types, clauses, forms, thresholds, and the price-to-win and limitations-on-subcontracting calculators.